Case Summary (G.R. No. L-21183)
Plaintiff’s Claims and Relief Sought
Victorias Milling Co., Inc. sought a declaratory judgment that Ordinance No. 1 was null and void; demanded refunds of license taxes paid and to be paid under protest; requested direction to municipal and provincial officials to observe Section 357 of the Revised Manual concerning the handling of protested tax collections; and sought other appropriate relief. The plaintiff’s substantive objections were that: (1) the ordinance exceeded rates suggested in Provincial Circular 12‑A; (2) it was discriminatory because plaintiff was the only operator of both a sugar central and refinery in Victorias; (3) it constituted double taxation; and (4) the national government had preempted taxation in this field (relying on national internal revenue provisions).
Trial Court Ruling and Relief Denied
The trial court concluded the ordinance imposed license taxes that were, in effect, regulatory license fees and ruled that license fees must be limited to the cost of licensing, regulation, and surveillance. It found the ordinance’s rates unreasonable and determined the municipality could not impose taxes for revenue in the guise of regulatory license fees. The court invalidated Ordinance No. 1 but, exercising equitable discretion, declined to order refunds of P280,000 already paid under protest (covering first quarter 1957 through second quarter 1960), except to require observance of Section 357 prospectively after notice.
Issues on Appeal to the Supreme Court
The appeal presented two principal sets of issues: (1) whether Ordinance No. 1 was a regulatory license measure (subject to the limitation that license fees relate to regulatory costs) or a revenue measure (an occupation tax validly authorized by Commonwealth Act No. 472); and (2) whether the trial court correctly invalidated the ordinance for being unreasonable, discriminatory, preempted by national law, or constituting double taxation. The plaintiff also challenged the trial court’s refusal to order full refund of taxes previously paid under protest.
Threshold Legal Characterization: Regulatory Fee or Revenue Tax
The Supreme Court first analyzed the true nature of the imposition. Under Commonwealth Act No. 472 and established jurisprudence, municipalities may impose: (1) license fees for regulation (police power), (2) license for restriction of certain activities (police power), and (3) license taxes for revenue purposes (taxing power). The Court emphasized that nomenclature alone (the words “license tax”) is not dispositive; the substantive purpose and effect determine whether an imposition is regulatory or a revenue tax. The Court examined the ordinance’s recitals and the municipal Resolution No. 60 (which explained the municipality’s revenue needs, including wage obligations and public works) and concluded the ordinance was enacted for revenue-raising purposes rather than regulatory oversight. The Court also noted the magnitude of the maximum annual levies (P40,000) and the absence of regulatory mechanisms or supervision tied to the licensing — factors supporting characterization as a revenue (occupation) tax.
Statutory Approval Requirement and Compliance
The Court addressed the statutory requirement that license taxes in excess of certain amounts receive the Secretary of Finance’s approval (as required in paragraph 2, Section 4 of Commonwealth Act No. 472 and related administrative rules). Ordinance No. 1 was recommended by the Provincial Board and received approval from the Undersecretary of Finance on December 18, 1956, with a directive that the ordinance take effect at the beginning of the ensuing calendar year (1957) pursuant to Section 2309 of the Revised Administrative Code. The Court found the necessary approval formalities satisfied.
Preemption Argument Based on National Tax Law
Plaintiff argued the national government had preempted taxation of sugar centrals and refineries by imposing percentage taxes under Section 189 of the National Internal Revenue Code. The Court rejected this contention because Ordinance No. 1 imposed a fixed occupation tax tied to maximum annual output capacity — a non-percentage tax — and thus was different in kind from percentage taxes contemplated by national law. Moreover, Commonwealth Act No. 472 expressly conferred municipal authority to levy fixed occupation license taxes even where national internal revenue taxes applied, with specified exceptions not applicable here. Consequently, the Court found no statutory preemption.
Reasonableness and Excessiveness Claim
The Court applied the presumption of validity applicable to legislative enactments and noted that courts should defer to municipal discretion unless amounts are prohibitive, arbitrary, oppressive, or confiscatory. Factors relevant to reasonableness include municipal conditions and the nature of the business taxed. The Court observed that: (a) if a tax is indeed a revenue measure, the regulatory-cost proportionality test (license fee limited to cost of licensing and regulation) does not apply; (b) the municipality’s claim of increased revenue needs was supported by its Resolution; and (c) economic context (notably substantial increases in sugar prices since 1940) and the relatively modest per-output rates compared to price increases militated against a finding of confiscation. The Court also considered the plaintiff’s capital investment and reported net incomes (1956–1960) and concluded the P40,000 ceiling was not confiscatory or unduly oppressive. The Court therefore found plaintiff had not sustained its burden of proving excessiveness.
Discrimination Argument
Plaintiff asserted the ordinance was discriminatory because it effectively applied only to it as the sole operator of both a sugar central and refinery in Victorias. The Court rejected this argument: the ordinance was facially neutral and applied to any operator of a sugar central or refinery within the municipality. Precedent supports the principle that the mere fact an ordinance currently affect
...continue readingCase Syllabus (G.R. No. L-21183)
Procedural History and Parties
- Case reported at 134 Phil. 180, G.R. No. L-21183, decided September 27, 1968; opinion by Justice Sanchez.
- Plaintiff-Appellant: Victorias Milling Co., Inc. — operator of a sugar central and a sugar refinery located in the Municipality of Victorias, Province of Negros Occidental.
- Defendant-Appellant: Municipality of Victorias, Province of Negros Occidental.
- Original action filed in the Court of First Instance of Negros Occidental as Civil Case No. 5565, entitled "Victorias Milling Co., Inc., Plaintiff, versus The Municipality of Victorias, Province of Negros Occidental, Defendant." The complaint was supplemented and amended.
- Both parties appealed the trial court’s judgment directly to the Supreme Court.
Subject Ordinance and Legislative Basis
- Disputed enactment: Ordinance No. 1, Series of 1956, Municipality of Victorias.
- Ordinance No.1 is titled: "An Ordinance Amending Ordinance No. 25, Series of 1953 and Ordinance No. 18, Series of 1947 on Sugar Central by Increasing the Rates on Sugar Refinery Mill by Increasing the Range of Graduated Schedule on Capacity Annual Output Respectively" (Exhibit 1).
- Ordinance No. 1 is an amendment to:
- Ordinance No. 25, Series of 1953 (taxes relative to output of sugar centrals) — Exhibit 3.
- Ordinance No. 18, Series of 1947 (municipal taxes on operators of refinery mills) — Exhibit 2.
- The ordinance itself states it was enacted pursuant to the taxing power conferred by Commonwealth Act No. 472.
Specific Provisions and Graduated Schedules
- Section 1 (sugar centrals):
- Imposes an annual municipal license tax, payable quarterly, on any person, corporation or other form of company operating a sugar central or engaged in manufacture of centrifugal sugar.
- The schedule begins at an annual output capacity of not less than 50,000 piculs of centrifugal sugar with an annual tax of P1,000.00.
- The schedule progresses through multiple grades up to an output capacity of 1,500,001 piculs or more, for which the annual municipal license tax is P40,000.00.
- Section 1(m) specifically provides: "Sugar Central with mill having a capacity of producing an annual output of from 1,500,001 piculs or more shall be required to pay an annual municipal license tax of....................... P P40,000.00."
- Section 2 (sugar refineries):
- Imposes an annual municipal license tax on operators of sugar refinery mills.
- The schedule starts at P1,000.00 for a refinery with annual output capacity of not less than 25,000 bags of 100 lbs. refined sugar.
- Second bracket: 25,001 to 75,000 bags — municipal license tax P1,500.00.
- The graduated scale continues with higher brackets and rates, with the ceiling at a capacity of 1,750,001 bags or more, for which the annual municipal license tax is P40,000.00.
- Section 2(m) specifically provides: "Sugar Refinery with mill having a capacity of producing an annual output of from 1,750,001 bags of 100 lbs. or more shall be required to pay an annual municipal license tax of .................. .. ...P40, 000. 00."
Facts Relating to Plaintiff’s Operations and Payments
- Plaintiff’s sugar central and sugar refinery are located within the Municipality of Victorias; plaintiff’s productions fall within the highest brackets of the ordinance’s schedules.
- Plaintiff paid license taxes under protest covering the period from the first quarter of 1957 to the second quarter of 1960 amounting to P280,000.00 (trial court record reference).
- Plaintiff’s disclosed capital investment and net income figures:
- Capital investment in sugar central and sugar refinery: approximately P26,000,000.00 (Tr. [Artenero], p. 83).
- Annual net income: 1956 — P3,852,910; 1957 — P3,854,520; 1958 — P7,230,493; 1959 — P5,951,187; 1960 — P7,809,250 (Exhibit 8).
Plaintiff’s Causes of Action and Legal Contentions
- Plaintiff sought judgment:
- Declaring Ordinance No. 1, Series of 1956, null and void.
- Ordering refund of all license taxes paid and to be paid under protest.
- Directing municipal and provincial officials to observe Section 357 of the Revised Manual of Instructions to Treasurers of Provinces, Cities and Municipalities (1954 edition) regarding treatment of taxes paid under protest during pendency of the action.
- Other reliefs.
- Grounds advanced by plaintiff:
- Ordinance exceeds amounts fixed in Provincial Circular 12-A issued by the Finance Department on February 27, 1940.
- Ordinance is discriminatory because plaintiff is the only operator of a sugar central and refinery within the municipality.
- Ordinance constitutes double taxation.
- National government preempted the field of taxation with respect to sugar centrals and refineries (reliance on Section 189 of the National Internal Revenue Code as involving percentage tax).
Trial Court Findings and Judgment
- The trial court found:
- The ordinance "refers to license taxes or fees."
- Settled rule: a license tax should be limited to the cost of licensing, regulating and surveillance.
- The license taxes in dispute are unreasonable.
- Held that if defendant has power to tax plaintiff for revenue, it must do so by proper municipal legislation "but not in the guise of a license tax."
- Relief ordered by trial court:
- Declared Ordinance No. 1, Series of 1956, invalid.
- Ordered all officials of defendant to observe Section 357 of the Revised Manual of Instructions to Treasurers (1954 ed.) with particular reference to any license taxes paid by plaintiff under the ordinance after notice of the decision.
- Ordered defendant to refund to plaintiff any and all such license taxes paid under protest after notice of the decision.
- Trial court declined, however, to order refund of all license taxes paid under protest up to the second quarter of 1960 amounting to P280,000.00, giving reasons:
- Plaintiff appeared to have agreed to payment of rates fixed prior to Ordinance No. 1, Series of 1956.
- Defendant had evidently not complied with Section 357.
- Financial position of defendant would be disrupted by blanket refund while plaintiff might easily forego what it had already paid.
Issues Presented on Appeal
- Plaintiff appealed the portion denying refund of taxes paid under protest amounting to P280,000.00 and objected to limitation of refund to taxes paid under protest only after notice of the trial court decision.
- Defendant appealed the invalidation of Ordinance No. 1, Series of 1956.
- Threshold legal questions considered by the Supreme Court included:
- Whether the ordinance was a regulatory enactment (license fee under police power) or a revenue measure (occupation/license tax under taxing power).
- Whether the ordinance required Secretary of Finance approval under Commonwealth Act 472 and whether such approval was obtained.
- Whether national preemption applied because of percentage taxes under the National Internal Revenue Code.
- Whether the ordinance was unreasonable, discriminatory, or constituted double taxation.
- Whether the situs of plaintiff’s business operations vitiated municipal power to tax.
Supreme Court’s Classification: Revenue Measure vs. Regulatory Fee
- Legal framework cited:
- Commonwealth Act No. 472, Section 1 authorizes municipal councils to impose municipal license taxes upon persons engaged in occupations or businesses, to collect fees and cha